Federal Tools To Combat Health Care Fraud and Abuse

By: Daniel G. Giaquinto, Esq.*

In a prior article we explored the criminalization of medicine in New Jersey by analyzing State criminal statutes pertaining to health care fraud. This article will attempt to give an overview of some of the statutory tools at the disposal of the federal government, both criminal and civil statutes, to combat health care fraud. It will focus on three federal statutes: the False Claims Act, the Anti-Kickback Statute, and the Ethics in Patient Referrals Act, commonly referred to as the Stark Law.

The False Claims Act (FCA) is a civil statute that has been described as the single most important tool taxpayers have to combat fraud committed against the federal government. This act applies to fraud involving any federally funded program or contract except tax fraud. Generally a violation occurs whenever anyone knowingly submits or causes to be submitted a false claim for payment of government funds. Penalties range from a $5,000 to $11,000 fine per false claim plus three times the amount of damages sustained by the government.

One of the most interesting aspects of the FCA is the provision it contains for “Qui Tam” (whistleblower) actions. This is a mechanism that allows a private complainant to initiate litigation in the name of the US government in order to recover payments induced by fraud. These cases are reviewed by the Department of Justice (DOJ), which in turn can further investigate and decide whether to join in the action. If DOJ decides to join the action, the private complainant may continue to participate in the matter as a party, and if the government succeeds the private complainant must be awarded 15% to 25% of the proceeds. If the government chooses not to join the case, the private complainant may proceed alone in which case 25 % to 30% of the proceeds, plus attorney fees and costs, would be awarded if the private complaint prevails. There are also special employment protections under the FCA for whistleblowers.

Frauds against the Medicare program and other federally funded programs are subject to the FCA. Initially the FCA was used to concentrate on fraud involving defense contractors, but the focus has now shifted to health care fraud.

The “anti-referral laws,” the anti-kickback statute and Stark law are additional tools at the government’s disposal. The goal of these laws is to deter and prevent overutilization of health care services, and to ensure that health care programs that are publicly funded, particularly Medicare and Medicaid, are not abused for financial gain. The common theme underlying these laws is that it is improper to offer, give, or receive something of value to encourage the referral of business in the healthcare industry.

The Medicare Anti-Kickback Statue (AKS) is a provision of the amended Medicare and Medicaid Anti-Fraud and Abuse Amendments of 1977. These amendments are collectively referred to as the Fraud and Abuse Act. The AKS is a criminal law that prohibits the knowing and willful solicitation, receipt, offer or payment of any remuneration for referring patients or arranging for acquisition of goods or services that are reimbursable, in whole or part, by Medicare or Medicaid. It also applies to those state health plans that are federally funded. The prohibitions apply to those persons and/ or entities who offer illegal inducements as well as those who accept them.

The definition of remuneration is broad and includes any form of benefit, direct or indirect, overt or covert, in cash or in kind. This definition would include any kickback, bribe, rebate or incentive scheme.

The statute itself contains several exceptions to its own prohibitions, such as a bona fide employment relationship. In addition to the statutory exceptions, the Office of Inspector General of the Department of Human Services (OIG) is responsible for promulgating “safe harbors” by way of regulation. Arrangements coming within a safe harbor do not violate the statute. Whether an arrangement comes within an exception or safe harbor is a complicated issue, one that is extremely “fact-sensitive”. OIG publishes both Fraud Alerts and Advisory Opinions on its website at http://oig.hhs.gov.

Violations of AKS are punishable by a $25,000 fine and/or up to five years imprisonment. In addition, the statute permits civil penalties of $50,000 per violation, plus an assessment equal to not more than three times the amount of remuneration. Also, a violation of AKS acts as a basis for a permissive, as opposed to mandatory, exclusion by the Secretary of Health and Human Services from participation in Medicare, Medicaid and federally funded state health programs. Although still an unsettled area of law, in past cases the Government has contended that a violation of the AKS gives rise to liability under the FCA, on the premise that a claim for reimbursement that violates the AKS is per se a false claim. If the Government ultimately prevails in this position it will subject practitioners to the “double- barrel” sanctions of both statutes.

The Stark law is civil in nature and prohibits a physician from making a referral to an entity for the furnishing of designated health services (DHS) for which payment may be made under Medicare or Medicaid, where the physician or his family member has a direct or indirect financial relationship with the entity. The key to understanding this law is in its definitions. As one might expect they are very broad.

The term referral includes any request by a physician for an item or service including a request for consultation and any requests for establishment of a plan that includes the provision of any DHS. The definition does not include any service personally performed by the physician. An entity is described as any type of business structure or organization that provides DHS. There are eleven DHS defined in the statute. These definitions encompass most reasons, including in patient and out patient hospital care services, for which a physician would seek to refer a patient.

A financial relationship that will give rise to the prohibition against referrals includes an ownership or investment interest, and any direct compensation or indirect compensation, with compensation arrangement being defined broadly as any remuneration between the physician or physician’s family member and the entity. Family member is also broadly defined to include spouse, parent, stepparent, child, stepchild, siblings, stepbrother, stepsister, in-laws, grandchildren, grandparents and spouse of a grandchild or grandparent. There is also a reporting requirement under Stark that requires entities to report financial relationships with physicians and family members.

Similar to the AKS, the Stark law contains both statutory and regulatory exceptions. The Health Care Finance Administration (HCFA) has authority to issue clarifications and exceptions through regulations. The Stark I exceptions were promulgated in 1995 (Stark I applied only to referrals for clinical laboratory services) and the exceptions to the broader Stark II referral prohibitions were implemented in two phases, Phase 1 of Stark II in 2002 and Phase 2 of Stark II in 2004. Similar to the AKS safe harbors, the evolving area of law dealing with compliance with Stark exceptions is complicated and fact-sensitive. HCFA advisory opinions may be found on its website at www.hcfa.gov/regs.

Although only civil in nature, the penalties under Stark are onerous. Denial of payment for claims and refunds of all payments that were made under circumstances that violated Stark are authorized, as well as civil fines not to exceed $15,000 for each claim that was made under a prohibited arrangement. Where an arrangement is made principally to circumvent Stark’s prohibitions, the fine could be up to $100,000. In addition, Stark violations could result in possible exclusion from Medicare and Medicaid and possible liability under the FCA.

There is a fair amount of interplay between the FCA, AKS and Stark. A violation of one could very well be a violation of another, depending on the fact pattern. Falling within a safe harbor of the AKS does not necessarily mean compliance with Stark, and vice versa. This is an area fraught with complexity and potential criminal and/or civil liability around every turn.

In summary, the laws outlined above are just an example of some of the formidable tools available to Federal authorities to combat health care fraud. The key to avoiding investigation and prosecution is understanding the prohibitions, the definitions, safe harbors and exceptions. Avoiding practices or arrangements that implicate the acts is the best antidote. The issue of compliance with these laws and their numerous safe harbors and exceptions should only be addressed through the advice of counsel experienced in these areas. Moreover, the administrative practice of constant documentation of compliance must be adopted, incorporated, and embraced, particularly when attempting to fit within a safe harbor or exception to either the AKS or Stark.

*Daniel G. Giaquinto is a Senior Attorney with the Healthcare Law Firm of Kern Augustine Conroy & Schoppmann, P.C. He will focus his practice on the defense of health and law enforcement professionals in criminal and administrative matters. Before joining Kern Augustine, Mr. Giaquinto was an Assistant Attorney General/Director of State Police Affairs for New Jersey where he successfully led the State’s efforts to implement the reforms of the federal consent decree to address allegations of racial profiling. Prior to joining the Attorney General’s Office, he served for five years as the Prosecutor of Mercer County, New Jersey. He has also served in the past as a Municipal Court Judge for the City of Trenton and the Township of Hopewell and as a Deputy Attorney General in the Major Fraud Section of the Division of Criminal Justice.

Mr. Giaquinto received his Juris Doctor from the Rutgers School of Law, has served on active duty with the U.S. Army as a Judge Advocate and continues to serve with the New Jersey Army National Guard in the rank of Colonel as the Staff Judge Advocate.

THIS ARTICLE WAS PREVIOUSLY PUBLISHED IN MD NEWS.